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Prevailing wage

Prevailing wage is the minimum hourly rate and fringe benefits a government agency sets for each job classification on covered public contracts.

Updated 4 min read4 primary sources

LAW
40 U.S.C. §3142, the Davis-Bacon Act
RATE
Basic hourly rate plus fringe, per classification and area
COVERAGE
Davis-Bacon contracts over $2,000
WATCH FOR
Split-rate weeks without hours recorded per classification

Which states have their own prevailing wage law, the contract threshold, the agency and how often certified payroll is filed, with sources:

The rate comes from a wage determination, based on what is already paid for similar work in the area. You pay at least that rate for every hour worked in each classification. The Davis-Bacon Act requires it on federal construction contracts, and the Service Contract Act on federal service contracts. Many states set their own prevailing wage laws for state-funded public works.

Which laws set a prevailing wage?

LAWCOVERSCONTRACTS
Davis-Bacon and Related ActsFederally funded or assisted construction, alteration, or repair of public buildings or public worksOver $2,000
Service Contract ActFederal contracts whose principal purpose is services through service employeesOver $2,500
State prevailing wage lawsState-funded public worksSet by each state

How is the rate built?

The determination lists a basic hourly rate and a fringe amount for each classification, such as electrician or laborer, in an area. Classify each employee correctly against it. When one employee’s tasks span classifications, you may pay each classification’s rate, if your records show the hours in each. The two ways to pay fringe, cash or a bona fide plan, are not interchangeable without meeting specific requirements.

PARTWHAT IT COVERSHOW YOU CAN PAY IT
Basic hourly rateThe cash wage for the classificationCash, unconditionally and at least once a week
Fringe benefitsHealth, pensions, insurance, vacation and holiday pay, apprenticeship costsBona fide plan contributions, cash, or both
TotalThe full prevailing wageMust meet the determination for each hour

Work it out: one week

Enter the wage determination’s basic rate and fringe, what you pay in cash and into a bona fide plan, and the week’s hours. The card pays any fringe shortfall in cash and computes overtime on the basic rate, leaving the fringe out.

WORKED EXAMPLE

One workweek: a plan that covers part of the fringe, and 5 overtime hours

40 U.S.C. §§3141, 3142
Basic hourly rateFrom the wage determination
$
Fringe benefitsFrom the wage determination, per hour
$
Your cash ratePer hour, including any paid in lieu of fringe
$
Your plan contributionsBona fide plan, per hour worked
$
Hours up to 40This workweek
Hours over 40This workweek
Cash wageFringe owed: $18.25Plan: $12.00Cash in lieu: $6.25
Cash in lieu of fringePer hour, at straight time on every hour
$6.25
Overtime rate1.5 × the basic rate, never below the determination’s; fringe excluded
$57.75
Each overtime hour, in cashThe overtime rate plus the fringe paid in cash, at straight time
$64.00
Plan contributions this weekEvery hour worked
$540.00
Cash wages this week45 hours, with $6.25 an hour of fringe in cash
$2,110.00
Paying the $6.25 of fringe in cash at time and a half on 5 hours of overtimeFringe, including cash paid in its place, is left out of the overtime rate, so it stays at $6.25 on each overtime hour.
$15.63more than the rule requires this week

Federal Davis-Bacon pay for one employee in one classification for one workweek: the wage determination’s basic hourly rate and fringe, met in cash, bona fide plan contributions per hour, or both, with any shortfall paid in cash, and overtime at 1.5 times the basic rate for hours over 40 where the Contract Work Hours and Safety Standards Act applies, with fringe at straight time. It leaves out the Service Contract Act and state prevailing wage laws, apprentices, work in more than one classification, plan contributions credited over all hours worked, and certified payroll. Other cases and state law can change the result.

Do you also need certified payroll?

Public works contracts that require prevailing wage almost always require certified payrollCertified payroll. Certified payroll is the weekly payroll report you submit on a federal public works project to prove you paid each employee the required prevailing wage.Click to open the term as well. The report shows the agency that each employee got at least the correct rate and fringe for that week’s hours and classification. Time tracking needs enough detail to support it: hours by project, classification, and often shift, not one weekly total. Requirements vary by funding source, contract, and state. Confirm them with the contracting agency before the first payroll run on the job.

How are apprentices paid, and what is the apprentice ratio?

An apprentice on Davis-Bacon work may be paid less than the determination’s rate only when individually registered in a program registered with the Office of Apprenticeship or a state agency it recognizes, or in the first 90 days of certified probation. The ratio caps apprentices to journeyworkers on the job site in each craft at the program’s ratio. Outside the program’s locality, the project locality’s ratios and rates apply, if it has them. Fringe follows the program, or the full determination fringe if it sets none. State laws can differ.

APPRENTICEWHAT YOU PAY
Registered, within the ratioThe program’s rate, a percentage of the journeyworker’s hourly rate
Certified for probationary employmentMay be less than the determination’s rate, first 90 days only
Not registeredThe determination’s rate for the classification of work actually performed
Above the ratioThe determination’s rate for the work actually performed

Frequently asked

Yes. You can generally pay the fringe portion as additional cash wages. You can also contribute it to a bona fide benefit plan, such as health insurance or retirement, or combine the two. The total must meet the required fringe rate. A cash equivalent of the fringe is also excludable from the regular or basic rate under federal overtime laws.

SOURCES
  1. 40 U.S. Code § 3142 - Rate of wages for laborers and mechanics
  2. 41 U.S. Code § 6702 - Contracts to which this chapter applies
  3. 29 CFR Part 5 Subpart B, Interpretation of the Fringe Benefits Provisions of the Davis-Bacon Act
  4. U.S. Department of Labor, Davis-Bacon and Related Acts

General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.

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